During the gift-giving season, if charities are on your recipient list, here are a few important things to remember:
$300/$600 Charity Deduction for Non-Itemizers
COVID tax relief packages included legislation to incentivize charitable giving. For individuals who take a standard deduction on their 2021 tax returns, IRC Sec. 170(p) allows a tax deduction of up to $300 for gifts, made in cash, donated directly to charity. For 2021, this limit has also been increased to $600 for a married filing joint tax return. The gifts need to be made in cash (i.e. not stocks or goods), and they need to be donated directly to the charity, meaning not via a donor advised fund (DAF).
100% AGI Limit on Cash Donations
COVID tax relief also lifted the AGI limitation on certain cash donations for 2020, which has been extended through 2021. Individual taxpayers who itemize their deductions may deduct charitable donations of cash gifts up to 100% of their adjusted gross income (AGI). This does not include cash gifts made to donor advised funds. Those gifts are still limited to 60% of AGI, and stock donations to charities or DAFs continue to have 30% AGI limitations.
Bunching with a Donor Advised Fund
When the Tax Cuts and Jobs Act made material changes to itemized deductions, many taxpayers began using a standard deduction. For those taxpayers who make charitable donations that do not exceed the standard deduction, it can help to utilize a bunching strategy with a large gift to a donor advised fund. A taxpayer receives a charity deduction in the year they make a donation to their DAF, so taxpayers can put multiple years’ worth of charitable giving into their DAF and receive the tax deduction in Year 1. The donations out of the DAF to the charities can then be spread out over multiple years. This bunching strategy can make the donations more tax efficient by allowing a taxpayer to itemize deductions in one year and then take standard deductions the following years.
VA NAP and EISC Credits
The Commonwealth of Virginia has two programs that add additional benefit to donations made to approved charitable organizations.
For both Neighborhood Assistance Programs (NAP) and Education Improvement Scholarship Programs (EISC), a VA state tax credit can be issued for up to 65% of the donation value.
The Neighborhood Assistance Act Tax Credit Program has two programs. One is administered by the Virginia Department of Education, and the other is administered by the Virginia Department of Social Services. These programs provide VA state tax credits to individuals or businesses that make cash or stock donations to approved neighborhood organizations. Additional information, including lists of current approved organizations, can be found at these sites:
The Education Improvement Scholarships Tax Credits Program is administered by the Virginia Department of Education, and it provides VA state tax credits for individuals or businesses that make cash or stock donations to eligible education foundations. Additional information, including a list of current approved scholarship foundations can be found at this site:
Approved organizations have received a certain allotment of tax credits for each tax year, so credit availability is specific to each organization. If you are supporting any of the charities included on the lists, it is important to reach out to the Organization to inquire about credit availability.
We hope you have a terrific holiday season, and if we can help with any of your year-end charitable giving strategies, please contact us.